The Utah Bankruptcy Blog

Month: August 2014

Yes, It can be done after you’ve filed for either chapter, also note that the trustee can also request a conversion.
For instance, if your chapter 13 fails, either you or the creditor, may request a conversion to chapter 7. Likewise if the trustee thinks money might be available for unsecured creditors they may make a motion to convert your chapter 7 to a chapter 13. More information on Utah Chapter 13 Bankruptcy can be found HERE.

“The number of personal bankruptcy filings in the United States increased more than fivefold between 1980 and 2004. By then, more Americans were filing for bankruptcy than were graduating from college or getting divorced.”
The number of personal bankruptcy filings in the United States increased more than fivefold between 1980 and 2004. By then, more Americans were filing for bankruptcy than were graduating from college or getting divorced. When Congress reformed bankruptcy laws two years ago, its aim was to crack down on those who were using bankruptcy as an easy way to escape their debts. The reform made filing for bankruptcy more difficult by requiring debtors with higher incomes to repay more, by making it much more complicated and expensive for all debtors to file, and by increasing the number of debtors who are ineligible for bankruptcy. These reforms caused the number of filings to drop dramatically – from 2 million in 2005 to 600,000 in 2006.
But the reforms had an unintended effect, contends Michelle J. White in Bankruptcy Reform and Credit Cards (NBER Working Paper No. 13265). While bankruptcy filings dropped, financial distress increased. How did this happen?
The answer is that by making it harder for consumers to escape their debts, the new law dramatically reduced lenders’ losses from default and bankruptcy. As a result, they started lending more, even to consumers with bad credit. Credit card debt increased more quickly during the past two years than at any time during the previous five years.
Consumers should have responded to the new harsher bankruptcy law by borrowing less, which would have lowered their risk of getting into financial distress. But not all consumers behaved in this rational way. Instead, many behaved shortsightedly and took advantage of the greater availability of credit to borrow more than they could easily handle — ignoring the risk of financial distress. (Economists refer to this shortsighted behavior as “hyperbolic discounting” – consumers who are hyperbolic discounters intend to start paying off their debts immediately, but each month they consume too much and end up postponing repayment until the following month. So their debts steadily increase.)
The new bankruptcy law exacerbated the problem of shortsighted consumers borrowing too much, because it prevented many of them from using bankruptcy to limit their financial distress. Many consumers in financial distress are unable to file for bankruptcy under the new law, because they cannot afford the costs of filing, cannot meet the new paperwork requirements, or are ineligible. This means that their debts will not be discharged and they will remain vulnerable to creditors’ collection calls and to wage garnishment that may take funds they need for basic necessities. Because of the new bankruptcy law, consumers can end up in deeper financial distress than would have been possible before 2005.
Survey evidence presented by White supports the idea that most debtors get into financial distress because of shortsighted behavior, rather than because they behave rationally but experience adverse events. In one survey of bankruptcy filers, 43 percent pointed to “high debt/misuse of credit cards” as their primary or secondary reason for filing. Another survey in 2006 found that two-thirds of those who sought credit counseling before filing for bankruptcy cited “poor money management/excessive spending” as the reason for their predicament, compared to only 31 percent who pointed to loss of income or medical bills.
White argues that lowering the costs of filing for bankruptcy would help debtors who are in the worst financial distress by making it easier for them to file. But changes in bankruptcy law cannot solve the basic problem of shortsighted consumers borrowing too much, since these consumers generally ignore the provisions of bankruptcy law until after they are in financial distress. Instead, White argues that changes in credit market and truth-in-lending regulation are more likely to work because they motivate lenders to lend less to the most vulnerable consumers.
— Laurent Belsie

A Chapter 13 Bankruptcy plan must last for at least three years, unless all debts can be paid off in full in less time. A Chapter 13 plan cannot last for more than five years. More information on Utah Chapter 13 Bankruptcy can be found at www.utahchapter13.com

Your eligibility for bankruptcy protection is determined in part by your household income. The Bankruptcy Code requires that you calculate your median income by looking at your gross income earned by you, your spouse and any other working member of your household during the 6 months proceeding the current month. You then have to add up all the income and divide by 6 to arrive at a number. This number is then compared to a median income table provided to us by the Census Bureau and the United States Trustee’s office. This calculation is called the “median income test.”
If you are over the median income, then a presumption of abuse arises as to your eligibility for a Chapter 7 bankruptcy and you must proceed to perform additional calculations (these additional calculations are called the “means test.”).
The addition of the median income and the means test to the consumer bankruptcy process has made bankruptcy a lot more complicated both for lawyers and for individuals. Many lawyers who used to handle bankruptcy cases no longer do so because of the complexity of the median income/means test process. My best advice is to speak with an experienced lawyer about your case. Ask the lawyer how long they have been filing bankruptcy cases for clients and how many cases they file a year. As with most things in life, experience matters. An experience Utah bankruptcy lawyer can be found HERE.